You’ve made an offer on a home—or you’re selling your home and have received a contract offer. Regardless of which side of the transaction you’re on, it’s essential to understand contingencies—the conditions that must be met before the sale is finalized.
What Is a Contingency?
In a real estate contract, a clause outlines the rights and obligations of each party. A contingency, on the other hand, is a specific condition that must be fulfilled for the contract to move forward. Both buyers and sellers must agree to and sign off on any contingencies before they are legally binding.
Because these terms can affect your rights and responsibilities, it’s always wise to have a real estate attorney review your contract before you sign.
Common Contingencies and Clauses in Real Estate Contracts
While every transaction is unique, here are some of the most common contingencies and clauses you may encounter:
Financing Contingency
Allows buyers a set period of time to secure a mortgage loan. If financing falls through, this clause helps protect the buyer’s earnest money deposit.
Appraisal Contingency
Ensures the home’s appraised value is equal to or greater than the agreed purchase price. Lenders typically won’t approve loans for more than a home’s appraised value.
Inspection Contingency
Gives buyers the right to have a professional inspection to evaluate the home’s condition. Buyers can request repairs, renegotiate the price, or even cancel the contract based on the results.
Home Sale and Home Close Contingencies
- A Home Sale Contingency gives buyers time to sell their current home before buying a new one.
- A Home Close Contingency allows time to complete the closing of that sale before finalizing the new purchase.
Title Contingency
Protects buyers by allowing a title search to confirm the seller’s ownership and ensure there are no liens or legal disputes. Lenders require this, and even all-cash buyers should order one.
Homeowners Insurance Contingency
Requires buyers to secure homeowners insurance before closing. This protects both the lender’s and buyer’s investment.
HOA Contingency
Applies to homes within a homeowners association. Buyers have time to review HOA financials, bylaws, and rules before finalizing the purchase.
Early Move-In Clause
If sellers agree, this clause allows buyers to move in before closing. Terms and responsibilities—like rent and liability—should be clearly outlined.
Property Condition Disclosure
Most states require sellers to disclose known property defects or hazards. For homes built before 1978, federal law mandates disclosure of any known lead-based paint hazards.
Continue-to-Show and Kick-Out Clauses
If sellers accept a contingent offer, they may continue showing the home. A Kick-Out Clause lets them accept another offer if the original buyers can’t remove their contingency within a specified time.
Rent-Back Clause
Sometimes sellers need to stay in the home briefly after closing. A rent-back clause allows them to do so under agreed rental terms and a defined move-out date.
What Happens if a Contingency Isn’t Met?
Each contingency should include a timeline. If a condition isn’t satisfied within that period—and both parties are acting in good faith—the contract may be canceled without penalty.
Including the right contingencies helps protect your financial and legal interests whether you’re buying or selling a home.
Work With a REALTOR® for Guidance
Your real estate agent is your partner throughout the process, helping you navigate offers, contingencies, and negotiations. A real estate attorney can provide legal insight into your state’s specific requirements.
Only professionals who are members of the National Association of REALTORS® (NAR) may use the title REALTOR®. REALTORS® follow NAR’s Code of Ethics, which requires them to act in their clients’ best interests and treat all parties fairly.
For more information and consumer resources, visit facts.realtor.
